Centre to get more money from National Small Savings Fund

The government’s move to exempt all but four States from mandatory investment norms for the National Small Savings Fund (NSSF) will not only help the Centre lower its dependence on market borrowings, it will also help keep the fiscal deficit in check, while possibly freeing up more funds for investment into public sector units.

The Cabinet announcement on Wednesday followed recommendations by the 14th and 13th Finance Commissions. It will allow States to borrow from the market at more competitive rates.

Economists believe that it will also increase the investible funds of NSSF with the Centre, and these could be used for other purposes.

“This is a major change in NSSF operations. With the availability of excess savings, States can borrow at cheaper rates from the market. Further, since NSSF is part of the Public Account and is off the Budget, it can allow for greater investments through public sector units,” said DK Srivastava, Chief Policy Adviser, EY (India), and a member of the 12th Finance Commission.

According to the Cabinet decision, the Food Corporation of India will be given a one-time loan of ₹45,000 crore from the NSSF. The decision also allows the NSSF to invest in future items based on the approval of the Finance Minister, and its expenditure will be borne by the government. Repayment of the principal and interest will be from the Union Budget.

Economists said the Centre could provide other public sector units a dispensation similar to the one given to the FCI.

The decision, which is effective from April 1, 2016, could be useful in 2017-18 as the Centre looks to keep its fiscal deficit in check while boosting capital expenditure.

“These funds are in the Public Account and outside the Budget. The move will certainly help the Centre to control its fiscal deficit,” said another expert, who did not wish to be named.

Further, with FCI now borrowing from the NSSF, economists believe that the lending capacity of banks will improve.

“The FCI, till now, was borrowing from banks for its working capital requirements, which was then shown by the lenders as food credit. Now, commercial banks are likely to have more funds available for lending,” said Devendra Pant, Chief Economist, India Ratings.

The NSSF consists of all collections from small savings, including deposits, certificates and PPF. Its funds are then invested in Central government securities and the interest from these is, in turn, are used to pay returns of 7 per cent to 8.5 per cent to small investors.

Noting that States were “less than enthusiastic” about their involvement with the NSSF, the 14th Finance Commission had said: “We recommend that the involvement of the States in the NSSF scheme with effect from 1 April 2015, may be limited solely to discharging the debt obligations already incurred by them until that date.”

According to Union Budget 2016-17, the NSSF is expected to see a deficit of ₹13,087.68 crore. However, data from the Controller General of Accounts reveal that deposits into the NSSF touched ₹1.01 lakh crore between April and November 2016.

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